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March 12, 2013

Newly Wealthy Often Overpay to Be Underinsured

Largest gaps exist in coverage for liability and for homes and valuable collections

High-net-worth individuals and families often fail to adjust their personal insurance programs as they accumulate wealth, and as a result pay too much for coverage that still leaves them exposed to severe financial loss, according to research released Tuesday by ACE Private Risk Services.

ACE surveyed some 600 independent insurance agents and brokers in 2010 and again last year about their new high-net-worth clients who had previously been insured by a mass-market carrier.

The new survey found that the problem of overpaying and underinsuring had grown worse in 2012.

Eighty-one percent of agents reported that families had homeowners and auto insurance deductibles that were too low, compared with 78% who said this in 2010.

Another 62% said families did not take full advantage of discounts earned by placing multiple policies with one carrier, up from 55% who reported this in 2010.

And 50% of agents surveyed believed that families had overlooked credits available for safety systems such as burglar alarms, water leak detection and power backup systems, compared with 36% in 2010.

The surveyed revealed that more high-net-worth clients insured by mass-market carriers in 2012 were likely to be underinsured for various, often serious risks:

92% of agents reported inadequate liability coverage, even though 80% of families believed their wealth made them a target for a lawsuit (up from 89% in 2010)

86% said wealthy families had inadequate protection if they should suffer serious injury or damage at the hands of someone without the insurance or assets to meet liability obligations (82% in 2010)

83% believed families had insufficient coverage of the main home and/or vacation home, even as this often represented the largest component of a family’s net worth (86% in 2010).

As in the 2010 survey, more than a third of agents reported that clients likely had too much insurance for minor losses, other structures on their property, such as detached garages and swimming pools, and the personal property in their home.

About the same number said these areas were likely to be underinsured.

“Unless they have a severe loss, [wealthy individuals and families] never realize their agent and carrier no longer have the expertise, insurance coverages and services to fully meet their needs,” Robert Courtemanche, division president at ACE, said in a statement.

“But by then, it’s too late. Ironically, if they had looked for an agent and carrier better suited to their current level of achievement and lifestyle, they probably wouldn’t have had to pay much more for better protection. In many cases, they could have paid less.”